Gold extends declines as rout worsens

Thursday, November 06, 2014

Gold prices continued to plummet lower yesterday, dropping 2.4% throughout the session as the yellow metal ended the day at $1,140.54.oz, the lowest level since April 2010. After a momentary pause between $1,160-70/oz earlier this week as prices consolidated after a heavy sell-off towards the end of October and beginning of November,  losing 5.1% in just four session, gold prices faced substantial selling pressure throughout the session as investment demand waned and investors sought out higher yielding assets. The recent precipitous declines in spot prices have seen the gold/silver ratio reach its highest level in five years as the relative cost of gold compared to silver has markedly risen in recent weeks, hinting at the potential for prolonged downward pressure as investors view the metal as overvalued. Activity early on this morning has seen prices recover above $1,145/oz as some investors took advantage of the buying opportunity, viewing the recent sell-off as overdone. However, the longer term trend shows SPDR gold trust gold holdings dropping lower, currently at 735.82 tonnes and down 7.8% ytd.

The yen traded at a seven year low against the dollar during overnight trading, extending towards 115.52 at one stage before pulling back towards 114.00 as many viewed the move as excessive. Details emerging from the most recent Bank of Japan minutes indicated most members viewed the weaker yen as net positive for the economy but having weakened over 8.0% against the dollar since mid-October investors are cautious of any overextension in the move. Prices early on this morning were trading around 114.35 and with expectations of prolonged downward pressure on the yen we could see moves towards 115.70 in the near term as the BOJ expands its asset purchasing plan.

Investors will be kept busy today with plenty of macroeconomic data releases throughout the day. The European session kicked off earlier this morning with the release of German factory orders which surprised on downside, growing 0.8% m/m in September against expectations of a stronger rebound to 2.3% m/m from the previous months -4.2% decline. Investors in UK markets will be eagerly awaiting the release of Industrial and manufacturing production data for September and with the ECB as well as the Bank of England rate decisions due out in the early afternoon market participants will gain further insight into the current economic climate. Switching over to the US investors will have plenty to keep them engaged throughout the afternoon with weekly initial jobless claims data as well as Q3 non-farm productivity while the Bloomberg consumer comfort index will add further colour to the demand picture.  

Spot gold prices extend declines below $1,150/oz

XAU Curncy Gold Spot Oz D 2014 11 06 07 34 27

Gold/silver ratio reaches new year-to-date high

PRMIPRGS Index Price Ratio Gold 2014 11 06 07 42 26

Yen trades above 115.50 against the dollar before pulling back

JPY Curncy Japanese Yen Spot 2014 11 06 07 47 21

Events for today

0500

JP

Sep

Leading Index

0700

DE

Sep

Factory Orders

0830

DE

Oct

Markit Construction PMI

0930

UK

Sep

Industrial Production

0930

UK

Sep

Manufacturing Production

1200

UK

Nov

BoE Rate

1230

US

Oct

Layoffs

1245

EZ

Nov

ECB Rate

1330

US

Q3

NF Prod. & Labour Costs

1330

US

w/e

Jobless Claims

1500

UK

Oct

NIESR GDP Estimate

1530

US

w/e

EIA Nat Gas

Topics: Equities, Gold, JPY
More from: Kash Kamal